The firm currently uses 50,000 workers to produce 200,000 units of output per da

Question

The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, & the price of the firm's output id $25. The cost of other variable inputs is $400,000 per day.

Assume that total fixed cost equals $1,000,000. Calculate the values for the four formulas:

Total Variable Cost = (Number of Workers * Worker's Daily Wage) + Other Variable Costs
Average Variable Cost = Total Variable Cost / Units of Output per Day
Average Total Cost = (Total Variable Cost + Total Fixed Cost) / Units of Output per Day
Worker Productivity = Units of Output per Day / Number of Workers

Calculate the firm's profit or loss. If there is a loss how many worker's need to be laid off in order for the company to break even?

Thanks.

Explanation / Answer

TFC = 1000000 ----- TVC = 50000 * 80 + 400000 = 4400000 AVC = 4400000 / 200000 = 22 ATC = (4400000 + 1000000) / 200000 = 27 Worker Productivity = 200000 / 50000 = 4 For finding profit / loss, find TR and TC TR = 5000000 TC = 4400000 + 1000000 = 5400000 for a 400000 LOSS. Assuming the same amount of revenue can be produced after laying off workers, we need to get rid of 400000 / 80 workers => 5000 workers need to hit the road.

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